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Unformatted text preview: 11-20-07Purchasing Power Parity - A purchasing power parity exchange rate equalizes the purchasing power of different currencies in their home countries for a given basket of goods. It is often used to compare the standards of living between countries, rather than a per-capita gross domestic products comparison at market exchange rates.World Development ReportAmerican Dollar Value Decreases Widening Trade DeficitWidening Fiscal DeficitSupply the market something, and in return you take something.Mexican Demand = DollarsSupply = PesosEverybody is demanding dollars!Supply of One Currency Increases Demand for Another Currency IncreasesSupply Yen Increases Japanese were supplying Yen and demanding other currencies.Exchange Rate price of one currency in terms of another(100 Yen = $1 Dollar)Currency Increases AppreciationCurrency Decreases DepreciationWhat would Happen?Officially raising fixed exchange rate RevaluationOfficially dropping fixed exchange rate...
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